C-suite takes us on a joyride of the economy

When asked what the economy looks like next year, a lot of our CEOs start by considering this year. And when doing so, the words “resilient” or “resilience” come up frequently in about one-third of the responses.

There was “surprisingly resilient” (Qantas CEO Vanessa Hudson), “more resilient than expected” (AMP CEO Alexis George), “remained resilient” (Scentre CEO Elliott Rusanow) or just “proved to be resilient” (Blackmores’ Alastair Symington) in the face of high inflation and rising interest rates.

And the CEOs mostly expect that resilience to feature again in 2024. The CEOs say Australia’s economy may not grow as fast, but should grow enough to avoid stalling.

That is a pretty narrow path; the RBA told us last month that Australia’s gross domestic product would increase 1½ per cent in 2023. Less than 1½ per cent growth suggests some of our CEOs will oversee businesses that go backwards in 2024.

Anecdotally, and having had plenty of those “what does next year look like” conversations in the past month, it feels like business generally expects consumers to be able to cling on for at least another year. Yes, economists have run the numbers on Australia’s savings buffer and some think it is nearly gone, but consensus among CEOs is that consumers have more left in the tank.

What that means is AGL Energy, Origin Energy and the like will increase electricity and gas prices again in 2024, insurers will bump up premiums, mobile phone and internet bills will go up, groceries will be more expensive, concrete and building materials will cost more, etc. The only thing going backwards are bank margins, nickel miners and the investment banking fee pool, which are all on the wrong side of their business cycle.

All the CEOs are focused on domestic issues when discussing whether the Australian economy will avoid a hard landing or recession in 2024. There is no mention of China, commodity prices, the Commonwealth government’s tax take or even the United States economy; just inflation, interest rates and the cost of living.

Macquarie’s Shemara Wikramanayake, in charge of a global business, takes us offshore briefly to talk about the global downturn, but returns to population growth and strength in key sectors to shape her outlook for the Australian economy.

A lot of CEOs think interest rates have peaked in Australia. CSL’s Paul McKenzie, for example, says: “Our internal view is that rates have peaked. The Australian economy has proven resilient, so I would not be surprised if a ‘hard landing’ was avoided.”

While inflation and interest rates dominated responses, CEOs are more closely watching the unemployment rate which comes out more strongly in off-record discussions. There are two parts to unemployment on CEOs’ minds this year – having a job and getting enough hours – and official statistics catch only one of those two.

Westpac’s Peter King went there in the survey. “The key question as I look forward is what happens to unemployment – or what does employment look like, do you have a job, and can you get the hours you need? Strong employment is solving a lot of the issues now,” he says.

That last bit is the main takeaway; while employment is strong, the RBA’s narrow path to a soft landing is on track.

The banks, insurers, energy companies and the like can handle the quick succession of interest rate rises so long as they do not trigger a quick succession of job losses. They know their customers can be resilient to interest rate hikes and cost of living pressures while they have jobs.

The CEOs were also asked about government infrastructure spending and whether that needed to be cut to take pressure off interest rates.

Santos boss Kevin Gallagher and Seven Group’s Ryan Stokes had two of the more eye-catching responses.

“If we want interest rates to do less of the work, then spending will have to be restrained,” Gallagher said.

“This comes at a time when many in the private sector, and even some super funds, are out there looking for government subsidies to support their investment proposals. More than ever, this is a time when capital investments have to be productive and efficient, and stand on their own two feet.”

Stokes, whose businesses including Coates Hire and Boral underpin infrastructure investment, said it was Australia’s best opportunity for productivity growth in the absence of material labour gains.

“As a country we desperately need that productive infrastructure investment,” he said.